Earlier this week, Eastman Kodak Company handed over its CEO 1.75 million share options.
It was the kind of compensation decision that generally would not get much attention, except for one thing: The day after the options were granted, the White House announced that the company would receive a $ 765 million federal loan to produce ingredients to make drugs in the United States. .
The news of the deal caused Kodak’s shares to increase by more than 1,000 percent. Within 48 hours of the allotment of options, their value had been ballooned, at least on paper, to about $ 50 million.
The options for Kodak’s CEO and CEO, Jim Continenza, are the latest example of company executives and board members receiving such federal support to take advantage of extraordinarily good timing. A number of these companies are involved in the search for vaccines and treatments for Covid-19.
Insiders at Vaxart, for example, were given stock options just before the California biotechnology company announced in June that its potential coronavirus vaccine was being tested in a program organized by a federal agency, prompting its shares to double immediately.
A spokeswoman for Kodak declined to comment on the timing of the stock option contributions, stressing that the value of the options could change before Mr. Continenza uses them to buy Kodak shares.
Kodak, best known for its iconic camera and film business, has struggled for years to reinvent itself. The company emerged from bankruptcy protection in 2013 and its shares in recent years have mostly traded at $ 2 or $ 3, giving it a market value of about $ 100 million.
From May, Kodak began talks with the Trump administration about manufacturing ingredients for drugs, says Mr. Continenza in a TV interview this week.
The deal was announced on Tuesday. President Trump said that the federal loan from the US International Development Finance Corporation would help reduce US confidence in other countries, especially China and India, in the vast majority of ingredients used to make generic drugs. Trump called the Kodak deal “a breakthrough to bring drug production back to the United States.”
Kodak said it created a new pharmaceutical division and will expand its facilities in Rochester, NY and St. Louis. Paul, Minn. The division will eventually have the capacity to produce as much as 25 percent of the active ingredients used in generic drugs in the United States. Kodak has been in the chemical industry for more than a century and “has the facilities sitting there ready to go,” Continenza said in a television interview this week.
It is unclear whether the ingredients that Kodak manufactures will play a role in the fight against coronavirus. Kodak will coordinate with the federal government and other manufacturers to find out what ingredients to make, and prioritize those considered critical to Americans and national security.
The day before the loan was announced, trading in Kodak shares increased and its share jumped about 25 percent and ended at $ 2.62 per share. That activity raised suspicions of erroneous trading in front of the market-breaking news, but the Wall Street Journal reported that it was apparently the result of media reports in Rochester, where Kodak is headquartered, about the ongoing announcement.
About the time Kodak began talking to the federal government this spring, Kodak insiders began getting options. The pattern was first reported by Non-GAAP Thoughts, a digital newsletter.
On May 20, Kodak distributed 240,000 share options to Board members – an addition to its regular capital distribution in January.
Stock options granted to board members in May are now worth approximately $ 4 million. These alternatives can be used gradually during this year.
Arielle Patrick, a spokeswoman for Kodak, declined to answer questions about why board members were granted stock options in May.
On the same day that Kodak warned the local media of its immediate announcement with the Trump administration, the Compensation Committee of the company’s board voted to award Mr. Continenza 1.75 million stock options that allow him to buy shares at prices ranging from $ 3.03 to $ 12.
By Wednesday morning, Kodak’s shares had risen as high as $ 60 each. Since then, they have retreated to about $ 24, which means that the options give Mr. Continenza the right to buy shares at a deep discount.
Mr Continenza can exercise some but not all options immediately.
Patrick said that the rapid increase in the values of Mr. Continenza’s new share options “are only securities. Mr Continenza has not received any income and has no intention of selling.”
She added that Kodak’s board granted the options to Mr. Continenza because when the company last year issued a type of debt that is converted to equity, the value of the CEO’s shares and options was diluted.
She said that Kodak received shareholders ‘approval in May to issue additional shares, and that the Compensation Committee approved the options “at the first meeting of this committee since the annual shareholders’ meeting”, which was on Monday 27 July.
She declined to comment on why Kodak did not wait until after the White House announcement to grant the options.
The increase in Kodak’s shares this week also transformed some stock options such as Mr. Continenza received when he became CEO. They had been really useless because of Kodak’s low share price. This week, their value increased to about $ 59 million, Reuters reported.